Dairy Today Expo Extra

Dairy Today's Catherine Merlo brings you the latest from the World Dairy Expo.

What Dairy Economist Mark Stephenson Will Reveal

Oct 02, 2013

For being a Wisconsin-based dairy economist, Dr. Mark Stephenson has spent an inordinate amount of time this year looking outside of "America’s Dairyland."

One outward focus and a high priority for Stephenson for at least five months was California’s dairy industry. Last November, California’s three major cooperatives commissioned Stephenson and fellow dairy economist Chuck Nicholson of Penn State University to conduct a comprehensive modeling study of a California Federal Milk Marketing Order (FMMO). The goal was to study and assess what could be expected by replacing California’s state milk marketing order with a federal counterpart.

The study took more than five months. In June, Stephenson and Nicholson delivered the final report, totaling 140 pages, to key players at California Dairies Inc. (CDI), Land O’Lakes and Dairy Farmers of America. The three co-ops market about 80% of California’s milk production.

I talked with Stephenson Wednesday at World Dairy Expo, hoping to learn more about the study. But due to confidentiality agreements, he couldn’t divulge much about the findings.

"The co-ops are going to be releasing information in the not-too-distant future," Stephenson, who is director of Dairy Policy Analysis at the University of Wisconsin, Madison, told me.

I already know that the findings "indicate that a properly written federal milk marketing order for California would provide a regulatory structure that would potentially result in higher farm gate prices, which would benefit California dairy farm families," according to a news release CDI sent out in June.

And I’m aware that the three co-ops are holding members-only meetings to discuss the study and the potential of a FMMO in California.

What Stephenson did tell me is what areas he analyzed for the study. He looked at "mock pools" to understand how an FFMO might look if one were in place in California. He explored what sort of incomes would be generated, who would have participated and how any income would be distributed across the state. He looked at a "dynamic model" of what an FMMO would mean for the state’s milk production. A federal order is likely "to change the path of prices" in California, Stephenson said.

Of course, that’s exactly what the state’s producers want. They expect higher milk prices with a federal order. But higher prices are likely to mean more milk, so Stephenson studied the supply outlook as well as the demand component.

"The modeling took a lot of time, effort and care," he said. "The dairy industry isn’t simple. There are a lot of dynamics in California."

The federal order possibility is a big topic in California. If a consensus to adopt an FMMO is achieved, implementing it would still be almost two years away.

In the meantime, there is more – much more – that’s occupying Stephenson’s time, and he was a little more forthcoming on two of those topics: the farm bill and the outlook for dairy prices.

"All scenarios are possible with the farm bill, but looking at Washington, D.C. right now, the farm bill is increasingly being moved down several notches," Stephenson said. "The only vector for getting it done is for it to be attached to another major piece of legislation, such as the budget or increasing the debt limit.

"If we do get an extension for the farm bill," he added, "I wouldn’t be the least surprised if it was pushed to a two-year extension to put us past the next election."

Regarding milk prices, Stephenson noted that producer margins are quite strong now, and he expects them to stay that way for the next two months. But he’s not so bullish about next year. He believes U.S. dairies will increase milk production as feed prices drop and export demand beckons.

"2014 is going to show milk prices reflecting the supply of milk, not just in this country but also in Oceania, which is having a more normal year," Stephenson said. "But our access to world markets is still good because demand in Asia and particularly China is unusually strong."

Whether that means milk prices will stay at $18 per cwt. or soar to $22 or drop to $14, Stephenson wouldn’t say. As you may have guessed, he’s pretty good at that.